The IAMB was briefed by Crowe Chizek on the outcome of their review of the settlement between Kellogg, Brown and Root (KBR) and the US Government. Crowe Chizek concluded that in their opinion “the settlements were reasonable”. The IAMB, however, continues to question the adequacy of the administration of the contracts, and the reasonableness of some costs, particularly transport costs which, in some instances, were as high 86%.

KPMG briefed the IAMB on its follow-up analysis of the other non-competitively awarded contracts funded from the Development Fund for Iraq (DFI). The IAMB was informed that out of $352 million of unresolved items reported in the initial audit, about $22 million remained unresolved. The unresolved amounts relate to: (i) no evidence of goods received, (ii) unreconciled payments, and (iii) a lack of corrective action on some previously reported exceptions.

Against this background, the IAMB recommended that the Iraqi Government seek resolution with the US Government concerning the use of the resources from the DFI that might be in contradiction with the UN Security Council resolution 1483 (2003).

Audit of the DFI

Briefing by Ernst & Young on the Interim Audit of the DFI

Ernst & Young briefed the IAMB on the interim audit of the DFI for the period 1 January to 30 June 2006.

Although the Auditors reported progress in financial controls, the interim reports continue to be critical of the financial and accounting control systems in place in the spending ministries, the US agencies in respect of the outstanding commitments using DFI resources, and the Iraqi administration of DFI resources.

The interim audit notes that the overall control system needs to be further improved to be sufficiently effective. The interim audit noted (i) the weak internal controls over the completeness of the export sales of petroleum and petroleum products, (ii) the continued export of petroleum and petroleum products outside of the DFI, (iii) an incomplete list of contractual commitments by US Agencies, (iv) the absence of reconciliations between the amounts transferred from the DFI account at the FRBNY and the amounts accounted for by the Central Bank of Iraq, (v) the absence of reconciliations between the oil production companies and SOMO, and (vi) the prevalence of barter transactions.

Follow Up on the Implementation of the Recommendations from the Previous Audits

The IAMB was briefed by the Representative of Iraq and the President of the Board of Supreme Audit (BSA) on progress in implementing earlier IAMB recommendations. Ernst & Young also informed the Board of the progress made in addressing prior recommendations including: (i) preparation of the DFI’s Statement of Cash Receipts and Payments, (ii) reconciliation of records, as they relate to the DFI, between the MOF and the CBI, and (iii) improved coordination between the Board of Supreme Audit and the auditors in following up on the observations reported in prior periods. The IAMB welcomed the action the Government of Iraq and the Board of Supreme Audit are taking on the implementation of the IAMB recommendations, but continued to reiterate its concern that key actions, especially the installation of an oil metering system, needed to be comprehensive and were taking a long time to implement.

Transitional Issues

The Representative of Iraq informed the IAMB that the Iraqi Council of Ministers at its meeting on October 19, 2006 approved the establishment of an Iraqi oversight body, hereinafter referred to as the Committee of Financial Experts, to succeed the IAMB and to be chaired by the President of the BSA.

The IAMB welcomed the establishment of the Committee of Financial Experts to continue the work of the IAMB upon its dissolution and encouraged the continuation of independent oversight. Transparency in the collection, recording, investing and spending of oil revenues is of paramount importance in providing assurance that Iraqi oil resources are properly managed and spent.

Press Release

The members agreed on a press release.

Other Business

The next meeting of the IAMB has been tentatively scheduled for 11–12 December 2006.